Can the state employee pension fund survive a R254bn knock?

Proposed Eskom bailout amounts to a massive 14% haircut.
Neither a loan nor an investment, but an unwarranted gift – and a red flag to the rating agencies, says the author. Image: Moneyweb

The crux of this article is to consider the financial impact of the proposed action to divert R254 billion from the Government Employees Pension Fund (GEPF) to Eskom.

It does not discuss whether the government has the legal right to expropriate R254 billion from the assets of the fund. After all, the assets belong to the members of the fund.

Adamus Stemmet, spokesperson for the Association of Monitoring and Advocacy of Government Pensions (AmaGP), recently asserted that:

“Treasury has no legal right to change the GEPF’s investment policy, nor does it have the large amounts belonging to the GEPF at its disposal to use at will to bail out SOEs, other organisations and entities. 

“The members [owners] of the GEPF clearly have a say in such matters.

“This legal right should and must at all times be protected by the GEPF board of trustees. That is their mandated responsibility as trustees. They must protect the fund’s members, the financial stability of the fund and also that any other assets of the GEPF are properly and professionally managed.”

Brief background

The Public Investment Corporation (PIC) manages 83% of GEPF assets in the form of equity, bonds, money market instruments, and property portfolios. The remaining 17% is managed by 32 asset managers appointed by the GEPF.

The relationship between the PIC and the GEPF is opaque, and it appears that the PIC takes the lead in making investment decisions.

The PIC was subjected to public scrutiny when the Mpati Commission of Inquiry (set up in October 2017), delved into allegations of impropriety in making investment decisions.

The Mpati report has been completed, but has not been publicly released.

Current value of the fund?

Unfortunately, no one has any idea of the current value of the fund. Neither the PIC nor the GEPF provide interim financial statements. The PIC integrated annual report is only published some seven months after its March 31 year-end, and the GEPF 2019 integrated annual report was only released in December 2019.

By the time the March 31, 2020 integrated annual reports are published, many new investments will have been made, investments will have been compromised, and investees may have hit the wall.

Neither the PIC nor the GEPF deserve any praise for their financial reporting. Not all investments are disclosed, and some of the accounting practices are questionable (for example, adding unpaid interest to the cost of a loan, giving the incorrect impression that the investment is growing).

In my view, a closer look should be taken at the investment valuations.

For want of a more accurate figure, it is necessary to use the fund’s market value of R1.8 trillion as at March 31, 2019.

An actuarial valuation of the GEPF is carried out every three years. The most recent, performed by Alexander Forbes Financial Services as at March 31, 2018, indicated declining short and long term funding levels.

The minimum short-term funding level was only 18.3% above the target of 90%, and the minimum long-term funding level was 24.5% below the target of 100%.

Factors to take into consideration

Injecting R254 billion into Eskom is in my view neither a loan nor an investment – it is an unwarranted gift granted through gritted teeth.

As Eskom is clearly insolvent, it will be unable to pay interest, nor make loan repayments.

Further, the GEPF/PIC will receive no rights – no right to appoint directors, no say in business decisions.

As at March 31, 2019, the GEPF had already invested R85 billion in Eskom.

It also holds R23 billion in the South African National Roads Agency, R21 billion in Transnet, R12.6 billion in the Development Bank of SA, and R6.9 billion in the Trans-Caledon Tunnel Authority. How can the government provide assurance to the GEPF that these bonds are guaranteed? Will the GEPF eventually lose this money as well?

Taking R254 billion out of R1.8 trillion amounts to a massive 14.1% haircut.

As at March 31, 2019, the GEPF had R29 billion “cash and cash equivalents”.

It will thus have to sell some good assets to provide the cash.

In my view, the R254 billion cash injection into Eskom cannot be classified as an investment, and will immediately deplete the assets in the fund.

Working on the basis of an asset value of R1.8 trillion, my rough non-actuarial calculation indicates that the R254 billion haircut will cause the fund’s long-term funding level to drop to 64.9% (minimum funding level target level is 100%). The short-term funding level will only be 1.6% above the minimum 90% level.

This latest threatened action is a red flag to the rating agencies.

It is a clear indication that the government has no money, and will take, divert, expropriate when needed.

And we have been warned. The first port of call is the sitting duck of the corruption fallout, the GEPF.

Read: The steady erosion of the foundations of the GEPF




Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in and an Insider Gold subscriber to comment.


One wonders what the fund members think of all this? The problem is that most of these fund members are financially illiterate and do not really grasp the seriousness of this whole ‘lending’ story. Where as ‘lending’ means ‘taking’.
This is not going to end well for someone. But who?

The real question is: what do people who belong to private pension funds and who have private retirement annuities think? Because, make no mistake, your pension savings are next. It is time now to stop entrusting your pension savings to any fund that is invested in South Africa, because the cadres are coming for it.

Is GEPF not a defined benefit scheme? So when it runs out all comes back to the taxpayer.

Kicking the can…

Ask the pensioners who were invested in the defined benefit schemes in Zimbabwe and Venezuela how it worked out for them.

Just remember that the tax payers can’t carry such a burden that follows from continued depletion of the GEPF. Off course the tax payers won’t want to, but they also simply can’t. Its too much money.

Yep, Cosatu probably realise that the PIC’s money given to that black hole called Eskom will disappear. But they sneakily think that the govt will then keep the GEPF defined benefit pensions safe. But this ain’t gonna happen. Because the govt can’t print more money (result = hyperflation and reduction of monetary value for pensioners. Ask Zim and Venezuela.) So Cosatu obviously figure that the taxpayer is going to cough up. Won’t happen. Recent SARS figures showed that 97% of income taxes were paid by FEWER THAN 3 MILLION PEOPLE. Out of 58 million S.Africans). These hard-pressed 3 million are also paying the bulk of VAT, CGT, DWT etc etc. SO COSATU, NO MORE MONEY IS GOING TO COME FROM THE TINY TAXPAYING POPULATION. Won’t happen. So GEPF ‘defined benefits’ pensions are going to be destroyed. Cosatu’s plan is rubbish. End of story.

If the point of this is to take debt off Eskom’s books it presumably isn’t a loan ?

The GEPF owns the largest portion of the debt. They won’t be taking the debt off Eskom’s books, they will be taking it off their own books. They will write it off, cancel it. This implies that Eskom is defaulting on its debt. Everybody who owns a government bond should be very worried. If this can happen to the GEPF, it can happen to you.

Does anyone actually get a pension from this fund, we are talking trillions not billions in the fund. My view is they may as well use it before it is gone.

I don’t think the rating agencies would be too concerned, from the state’s point of view it spreads out this part of the bailout cost over a much longer period.

It would be useful for the author to spell out exactly what is meant by long- and short- term funding levels. GEPF has been cash-positive to the tune of 50bn a year on average over the last decade and is under no pressure.

…just show the GEPF members the nice high (market-beating) % returns they’ll get on Eskom bonds (due to high risk….shhhh)

Upon seeing the high % yield…then they’ll urge the fund managers to invest even more!

Dumb sheeple continue to vote ANC. Thus they deserve to lose all their money. After all, they destroyed our country & cause millions of us to emigrate.

The who is the tax payer. The guaranteed benefit payout is insured by our blood, sweat and tears, lots and lots of tears

Exactly. Where dos all this outflow from GEPF go to, all of a sudden?

The desperation may have finally reached a point where the beast begins to devour itself, in a last ditched effort, for its own survival.

this is the beginning of an Armageddon we can’t contemplate……..just think what will happen if government employees and grant seekers don’t get their money?

Oh but this nothing more than a ploy!
If you think, R250(+)billion could fulfill many other purposes. Re-skill or settlements for retrenched workers and address ALL other inefficiencies, or, settle the debts of multiple other SOE’s, or, invest in infrastructure to mitigate load shedding/Medupi & Kusile…or even kick off Mantashe’s Eskom “2.0”!

The options are endless but no! They want to use it to keep the status quo, so that we’re back here in the same poo 5 years later. Just enough time to win another election.

@Chev. Agree. This is what RW Johnson (in his book “How Long Will SA Survive the Looming Fin Crisis”) describes the event as:

“….when an irresistible force (the ANC) will meet an unmovable object” (i.e. financial cliff / debt trap)

What will happen if govt cannot pay salaries, SASSA grants, the patronage feeding trough runs dry, you ask?

Same that happened with NP govt. Regime change.
(but the problem is who will want to inherit ANC debt? The DA will just become less popular when they try austerity measures & the EFF will be even worse at it…sinking SA further with even less money left…so EFF will also lose their voter support when there’s no money left to benefit the people.)

Nice work, thanks for the color

The cancer in South Africa is now terminal, organs are shutting down and breathing is slowing. we are now in palliative care, just waiting………..

Which parties actually stand to benefit from this move? The employees don’t benefit because they are funding the donation out of their pension funds. Soon, they will be without a pension and without a job. Eskom does not benefit because the business model is a failure anyway, it is in a death-spiral. The country does not benefit because the bailout only serves to prolong the inefficiencies, corruption and the looting.

Politically connected BEE beneficiaries stand to benefit. They will be able to plunder via coal contracts, transport contracts, maintenance contracts and diesel contracts. The BEE “entrepreneurs” have found a way to extend their looting all the way to the GEPF. It was always only a matter of time.

The fact that the GEPF would one day disappear into the BEE gravitational black hole was written in the stars from day one.

Don’t gifts, unwarranted as they may be, attract donations tax? And does debt forgiveness trigger a CGT event for Eskom?

Probably the same way Zuma “paid” CGT on his Nkandla gift.

More likely he should have paid fringe benefits tax both on the improvements and the interest free loan granted. I am sure SARS is too busy harassing taxpayers trying to be honest with their taxes, despite the moral dilemma this causes, to go after the ANC cadres.

Keep in mind that the GEPF is a defined benefit pension fund. Therefore, when (and not if) they run out of money, the tax payer piggy bank has to make good any shortfall. Problem is, the tax payer base is shrinking, so good luck to the African National Corruption. Maybe they should start to tax the SASSA crowd as well, other than VAT?

They don’t need to run out of money, the 90% minimum short-term funding level is fixed in the law so if this transaction reduces it to 91.6% then the need for additional contributions may not be far away. The next actuarial valuation is due in 2021.

Why does the GEPF care? Pensions are backed by the state, so if the money is lost, it’s the reliable old taxpayer that tops it up again…

This is the critical point. GEPF is a defined benefit scheme, so the investment risk is underwritten by the scheme and not the members. Essentially, if the GEPF and PIC funds are squandered on poor investments or ideologically-driven bailouts, the government (taxpayers) will have to step in and make good on the pension promises. This encourages risk-taking by current politicians, since they’ll be long gone when somebody comes to cash the blank cheques they are handing out.

It is also very difficult to unpick the financial position of these funds, especially when there are plenty of unlisted and highly illiquid investments, which are valued by management internally, rather than with reference to an open market of willing buyers and sellers. I am always very skeptical of any claims PIC or GEPF make as to the “value” of their portfolios.

What’s really scary about this whole circus is that the anc think they found a solution to eskom’s financial massive debt by “investing” gepf pension trust money into a useless soe with zero return thereon – my question is: does the average government employee actually understands and is it explained to him/her what is done / plan to do with his/her pension savings. Just thinking of such an idea illustrates the actual zero financial insight this government has – from top to bottom

Guys, the point is – the total amount of benefits will be paid out to pensioners – there is no doubt about this! Every government employee will receive his full benefit from the GEPF. now this is where it gets scary – the benefits will be paid in nominal terms while life happens in real terms. This is the entire debate!

GEPF members are bailing out the ANC and BEE with the purchasing power of their pensions. Time to rise up i would say…..

While the GEPF guarantees certain payments for the rest of the pensioner’s life, these guarantees may fall away should the GEPF experience financial difficulties or change its fund rules. If South Africa needs a bailout from the IMF strict austerity measures will have to be implemented. This could include pension cuts for public sector pensioners.

@ Mark. Agree, but I need to add: long BEFORE the IMF will be asked for funding (….i.e. will be political suicide for ANC to stop freebies to voters), SA still have R4+ trillion of retirement fund assets to (continue to) pay for the inefficiencies or AA/BEE/cadre deployment/corruption.

Yes, once that is depleted after many years, then govt will first try to print mountains of ZAR notes like Zim, causing hyper-inflation.

Thereafter loans for China (in return, they take possession of strategic parts of SA as ‘payment’)

Lastly, when SA’s economy has been reduced to rubble, with most of the minorities already left for abroad (or passed on), then the IMF will be asked to salvage what left. By then SA will be so insignicant, that no-one would notice. Depending on one’s age, we won’t be here (neither our kids, or we’ve already left for the afterlife)

did the PIC get their money back from Iqbal Survey – oh that was only R4bn that they lost on being ripped off for a company whose real value was less than 5% of the amount paid – what a disgrace!!! Ultimately the state employees pension fund lands up paying for this

It Took more than 2 to tango here.

In depth analysis made clear, even to me.
Some questions come to mind … how much worse, if you add the additional R63.5 billion in dubious loans to the haircut? Did the GEPF ever have an “investment policy”? Has Eskom plundered its own Pension Fund yet?
How safe is private retirement funding, given the ANC election (2019) promise, to, “investigate the introduction of prescribed assets on financial institution funds, to mobilize funds within a regulatory framework”?

@Ronnie. “How safe is private retirement funding” you ask?

Not as safe as you think 🙁

It takes only the enactment of a law / passed by Parliament…and the private retirement fund industry would have to comply.

Will start with compulsory funds (eg. Pens/Provident/Preservation/ RA Funds), and then will ripple out to discretionary (locally domiciled) asset managers holding your UT / ETF / TFSA monies.

Only funds that are not reached by ANC’s looting will be foreign domiciled funds. You know what to do. Speak to Magnus…

This is very succinctly written by the journalist. Precise and concise.
Of course that well fed Jamnadas would view it as fiscally neutral but he is one of the causes of the problem.

The solution-ask the Pension Fund members to vote and approve a permanent 7% reduction in their pensions. So to some Cosatu worker retiring now ask him/her to reduce their pension from R 10 000 per month to R 9300

They’ll empty the GEPF and the PIC and then they’ll blame … colonialism & their descendants who still (albeit not for much longer) live here on the southern tip of Africa

If it is an unwarranted gift It is illegal as surely the GEPF is there to make investment for growth vs inflation. They are not Father Xmas. If it is a loan then it is also illegal as they are not a Bank and if they are a ‘bank’to allow loans then under the National Credit Act it is reckless lending because the lender can not afford to pay back the loan.So, the decision makers are at risk and then should end up in jail. I am asking?

Lol I’m loving this….. Using there anc card carrying members pensions….. Lol
Let me grab some popcorn…… It’s gonna be a fascinating documentary…. Or is it a comedy…. Mmmmm

Ally cat, not sure why you are loving this, when the average South African takes another significant blow to their financial well being, considering the intended and further unintended consequences which will emerge from a decision like this.

You must be a complete narcissist to not have any empathy for the plight of the average South African, who does not have a voice or financial literacy to really understand the dire implications of this decision!

Not so fast with that…. the average south african aka the majority are the ones that are really to blame for this mess we find ourselves in.
They steadfastly keep the current corrupt government in power each election thru the ballot box. So yes they do dereserve whatever result that brings – positive or negative. The result is very much deserved. And don’t forget everyone over the age of 18 has a’s called the vote Alan. The majority just choose to exercise it very badly. There’s a price to pay for that…. Just like there’s a price to pay it they used it wisely aswell.

Agree, however it all goes back to education which the majority of our population were and are still deprived of -its easy to rustle up a few freebies at election time, to ensure they vote again and again, without a greater understanding of the long term consequences

Well, at least GEPF can look forward to earn high-yielding Eskom bonds….possibly now well above 9% p.a.

That is super inflation beating! Better than the JSE over the past 5 yrs.

(Only concern is GEPF won’t be able to draw on that capital….ever?)

All the pension funds are going to have their turn in ‘prescribed assets’. The GEPF first. Buys the rest time….

There is no guarantee that this “loan” will save workers jobs at all. Furthermore, aren’t all embattled SEO’s going to want the same?

The government pension funds are being raided openly. Consider AYO and the other Iqbal entities, the SOE and basically any other connected cadre who wants to become a over night billionaire.

The story of the SOE will only be scratching the surface. It is going to be a sad retirement for many state employees

As far as private retirement products goes, the tax break is not equal to the risk you are taking. For one as stated the funds are in the firing line for prescribed assets. And secondly you have to trust the Fund trustees to award the money to the people you nominate as a beneficiary, which they can choose to ignore completely and award funds to whoever puts up their hands as beneficiaries, and that definition is very very broad

Those dumb sheeple will follow the ANC, COSATU & the Communist Party’s ‘advice’ by handing over their pensions to the ANC to ostensibly pay off some of their employer’s (EKSDOM’s) debt.

Ultimately, these fools will end up with no pensions AND no jobs.

The PIC and the GEPF are just two of the last three lambs left to slaughter. As Sensei points out, the primary beneficiaries will be the looters who once again will sink their teeth into the bail-out money through tenders, bribes, inflated contracts, political appointments, and just plain theft. Private pension funds is the last lamb.

They might come for the private pension funds sooner than people think. A few years ago state corruption was called a white person’s problem with the accompanying sneer of racism and derision. The term white monopoly capital was invented by state capturers to turn concerns about large scale looting of state coffers into a race card. Valid concerns where deflected by claims that white people do want to accept the success of Africans in South Africa.

Then the Zondo commission happened.

The Zondo commission shocked every South African by how deep the rot ran, and probably still runs in state organisations. Corruption was no longer fictional, or isolated, or limited to one rogue employee on the take. The graft was massive, widespread and no longer a white problem. The Zondo commission has been sitting for a year and a half and still the skeletons are tumbling out of the closest at a rapid rate. A separate commission looked into irregularities at PIC. That commission’s report is finalised but remains unpublished.

The question: If corruption and state capture are as widespread as the Zondo commission has proven, why would the GEPF and PIC remain untouched? They are some of the largest jewels in the collection. Why would these entities survive state capture? The answer: GEPF and PIC may already be victims of state capture. A closer inspection might reveal a similar level of graft and financial debauchery. If this mornings news headlines about a property bail-out near Klerksdorp turns out to be true, well then there could be many more nasty surprises waiting around the corner.

This means that the GEPF and PIC may not give the expected mileage. Another source of funding will be needed…..

How will the money be recovered? What happens when Eskom or other SOEs needs more bailouts? GEPF pensioners will be in the same boat as Transnet pensioners who have only received 2% increase for the last 17 years.

Eskom cannot pay its debts so how would this loan be paid back?
Not on – leave the GEPF alone

Well this bit of “Transformation” is working real well.

From “previously disadvantaged” to “Advantaged” and now a step forward to “currently disadvantaged”

It is also quite scary to think that should the PIC offload R254 billion worth of shares, the JSE will also start plummeting. Simple suppply and demand – an excess of shares and willingnes to sell them desprately means the shares will fall. Thereby reducing the returns of the average investor, and of course the shares still remaining in the PIC! What then, Cyril?

The most importend to remember is that the GEPF is NOTa geverment emergency fund it belongs to the contibuting and paidup members of the fund and its high time that somebody strats listening to what they have got to say ,they have been ignored to date.

We will have to see what the deal is, but there’s no reason to think there will be a big-bang repayment. The SPV will assume 254bn of debt in exchange for what, equity in Eskom ? and then GEPF will probably fund the servicing of that debt on a pay-as-you go basis, over several years.

I read the other day that about 25% of GEPF’s investment growth in recent years is attributable to Naspers, so pensions already depend on Chinese kids playing games, that’s pretty scary already !

The chinese kids playing games at least delivers a better return thanEskom

Since Cosatu is clearly offering this advice for the mere purpose of garnering votes and based on a calculation read here somewhere about this “bailout” equating to around R8.3m per worker that should instead be retrenched, I’m willing to join Cosatu for a measly R5m. I will participate in all demonstrations, rioting, looting of shops, whatever is required. Also, I would like free electricity forever and possibly a market-related salary for whatever they seem fit. Seriously, it’s only R5m, compared to what’s been squandered everywhere else. Cosatu, if you read this and agree, Moneyweb has my permission to share my personal details with you.
(That’s basically where we are as a country so why not simply just ask!)

Is this a preview of expropriation without compensation?

I have a pension but not on a state pension.
BUT if I was, I would be EXTREMELY upset that the current government is stealing from MY and others personal assets, being pension money. to finance their OWN failures. They should be made to pay for this from their own pockets, not from state employees’ own money.

Where does this money, stolen from state employees, go to?
How can people be willing to allow this theft to happen?

This is nothing than another scheme to create a “pot of gold” (source) for the immoral, corrupt and greedy looters of state assets.

Official thievary????? They can now TAKE YOUR PENSIONS AND THROW IT TO THE WOLVES?????????????????????????????????????

I have mentioned this before. Radical economic transformation has three steps:
1. Empty the state coffers ie tax payer’s money. Completed.
2. Plunder the savings of others ie pension funds. Started with GEPF, next private savings.
3. Expropriate the assets of investors ie mines, land, etc. Will be implemented by the end of 2020 after parliament has approved the new EWC bill.
Chaos, poverty and famine ensue.
Cycle complete.

You missed one:

Expropriate all minerals in the ground – completed.

End of comments.



Instrument Details  

You do not have any portfolios, please create one here.
You do not have an alert portfolio, please create one here.

Follow us: